This article first appeared in The Edge Financial Daily on April 26, 2019 - May 2, 2019

KUALA LUMPUR: Nestle (Malaysia) Bhd has raised its capital expenditure (capex) to RM220 million for 2019 — its highest in five years — with the bulk of it to be spent on expanding its factory in Chembong, Negeri Sembilan into what it touts as the world’s largest Milo Manufacturing Centre of Excellence.

Nestle Malaysia’s previous capex spending was RM204 million in 2015, RM123 million in 2016, RM164 million in 2017, and RM147 in 2018, according to its chief executive officer (CEO) Juan Aranols.

Of its 2019 allocation, RM100 million will be used for the Chembong expansion, while the remainder will be used for improvements on its other factories, and to fund some other projects.

“Our increased capex plans will further support our focus on leveraging new opportunities for our products, delivering a steady stream of innovations and constantly drive efficiencies that will help us sustain our competitive edge and accelerate growth.

“We are confident our robust strategy will enable us to continue generating healthy, profitable and sustainable growth in 2019.

“It is no secret that consumer climate is volatile, some data has shown that this year is less positive than last year. [But] we remain confident as we see demand from our brand will remain healthy and with our teams on the ground, everywhere, that will allow us to capture all the opportunities,” Aranols said.

Consumer sentiment in Malaysia continued to stay below the 100-point optimism threshold in the first quarter of 2019 (1Q19), according to data compiled by the Malaysian Institute of Economic Research (MIER).

The Consumer Sentiments Index fell to 85.6 points in 1Q19, after dipping to 96.8 points in 4Q18. This marks the index’s third consecutive drop, after it skidded to 107.5 points in 3Q18 from 132.9 points in 2Q18.

Meanwhile, Nestle Malaysia said it has taken steps to mitigate headwinds in the increasing prices of raw materials.

“We look into many strategies to manage any volatility externally. First is through hedging strategy and second is driving our internal savings. In fact, we are proactive (in managing the external volatility) and we are quite forward thinking to accommodate any volatility,” said Craig Connolly, chief financial officer at Nestle Malaysia.

He added that increasing product prices will be the group’s “last resort”.

On the group’s financial outlook for the remainder of this year, Aranols said Nestle Malaysia “has everything in place to deliver the results, adding that the group will have a continuation with the good momentum seen in 1Q19.

The group’s net profit for first-quarter ended March 31, 2019 (1QFY19) rose a marginal 1.7% to RM235.21 million from RM231.22 million a year ago on lower operating expenses due to the phasing of marketing and promotional spends, as well as increased efficiency across its supply chain. Revenue rose 1.6% to RM1.45 billion from RM1.43 billion.

Nestlé Malaysia shares retreated 50 sen or 0.34% to close at RM146.50 yesterday, giving it a market capitalisation of RM34.35 billion. The stock has climbed over 7% in the past year.